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The open innovation model emphasizes flexibility in a firm’s innovation strategy: The best source of innovation may be outside the firm (arrows going in) The best market for an innovation may be outside the firm (arrows going out) The importance of flexibility. Span firm boundaries. Can bring in technology at any point in the product development process. Major goal: if firm is fighting false positives (extra cautious), you will get lots of false negatives (Chesbrough 2006). Make sure you find a way to monetize or otherwise find a path to market for these false negatives.

This is all the stuff that’s of interest to the MCPC community, but it’s not often found in OI. Some say it’s a level of analysis thing: that consumers or individuals are not part of OI. I don’t agree — I just think they haven’t been studied much

The inherent value of a technology remains latent until it is commercialized in some way. (Chesbrough &amp; Rosenbloom, 2002: 529-530).

Profiting from External Innovation: A Review of the Research

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Profiting from ExternalInnovation: A Review of the Research Joel West KGI - The Keck Graduate Institute www.oiblog.net Marcel Bogers SDU - Southern Denmark University MCPC 2011 San Francisco 18 November 2011

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What is KGI?• Keck Graduate Institute of Applied Life Sciences - Mission: “dedicated to education and research aimed at translating into practice, for the benefit of society, the power and potential of the life sciences.”• Founded in 1997• Funded by grant from Keck Foundation• About 150 graduate students• Youngest of 7 Claremont Colleges• Mixture of science and business faculty

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Profiting from External Innovation• 1986: Teece created a model of small firms profiting from their own innovation - “Profiting from Innovation” model - Partner if they can’t commercialize on own vRely on established firms for manufacturing, distribution, support• Today: firms commercialize external sources - Inbound perspective of open innovation

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What we didFor research on inbound OI:• Developed a 4-phase process model• Reviewed OI research (2003-2010)• Looked for gaps and opportunitiesRecent draft is on SSRN

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What is “open innovation”? “Open innovation is the use of purposiveinflows and outflows of knowledge to accelerateinternal innovation, and expand the markets forexternal use of innovation, respectively.” Henry Chesbrough, Open Innovation: Researching a New Paradigm, p. 1

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1. Obtaining Innovations• Best covered of the phases - Searching, enabling, filtering - Sourcing particularly well covered• Most popular area: sources of innovation• Often about external knowledge and not external innovations• Not much about asset specificity of potential innovations

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Unanswered questions (1)• Search: Largest body of research - Is this what’s new? - Or is it the most fun to study?• Integration: - What competencies are necessary? - When do external sources substitute for (or complement) internal innovation?

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Unanswered questions (2)• Commercialization - Is commercialization path the same? - Where are success metrics? vDecades of NPD research offer examples• Non-linear approaches - Open innovation tends to have linear focus vOpen Services Innovation is notable exception - How is this changed by feedback, co-creation, other cooperative mechanisms?

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Unanswered questions (3)• Where is the business model? - Includes value capture• Is everything an “innovation”? - Patent, copyright, knowledge

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Invention vs. innovation We owe to Schumpeter the extremelyimportant distinction between inventionsand innovations … An invention is anidea, a sketch or model for a new orimproved device or system. … Aninnovation in the economic sense isaccomplished only with the firstcommercial transaction (Freeman, 1982)